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March 29, 2017

Trump Order Dismantles Climate Rules

IPI expert referenced: Merrill Matthews | In The News | Media Hit
  Platts Energy Trade

By Jasmin Melvin, Brian Scheid

President Donald Trump on Tuesday signed an executive order that may slow the closure of some US coal-fired power plants and will begin a lengthy process of rescinding much of former President Barack Obama's climate change policies.

But the order had no noticeable impact on coal, natural gas or crude oil prices Tuesday; will likely have no near-term impact on the domestic fossil fuel supply; and appears to roll back regulations already being unwound in courts.

Kevin Book, a managing director of ClearView Energy Partners, said the order may exacerbate an imbalance between supply and demand, since many of the regulatory limits on US supply will be removed, but demand will remain inelastic.

"Ironically, it may mean more energy, but it may mean that not every energy company benefits," Book said Tuesday. "There is an intermediate-term risk of deregulating supply faster than demand. Some operators will do well ... but for the market as a whole, it may not be good."

The market impact of the order may prove to be limited, largely due to the partisan shelf life of the order, according to Michael Cohen, head of energy markets research at Barclays.

"Is a corporation going to make 20-, 30-year capital decisions based on something that may be in place for only four years before it gets revoked?" Cohen asked.

The order, which Trump signed Tuesday while at the Environmental Protection Agency with a dozen or so coal miners flanking him, will attempt to rescind much of Obama's efforts to combat climate change. Perhaps most notably, the order calls for steps to rescind the Clean Power Plan, the most significant piece of Obama's climate agenda.

The rule sought to cut carbon emissions from existing power plants by 32% from 2005 levels by 2030, with interim CO2 reduction goals to be met by 2022.

EPA must 'immediately' take up CPP review

Under the order, EPA Administrator Scott Pruitt was directed to "immediately take all steps necessary to review" the CPP and the associated carbon pollution standards for new power plants "and, if appropriate, shall, as soon as practicable, suspend, revise, or rescind the guidance, or publish for notice and comment proposed rules suspending, revising, or rescinding those rules."

EPA’s carbon rule for new, modified and reconstructed power plants put a 1,000-pound of CO2/MWh limit on emissions from new fossil fuel-fired generation and mandated the use of carbon capture and sequestration at any new coal facilities.

Trump put the CPP and associated rules in his crosshairs while on the campaign trail, promising to put coal miners back to work.

"Today I'm taking bold action to follow through on that promise," Trump said in a speech just before signing the executive order.

"My administration is putting an end to the war on coal. We're going to have clean coal," he said. "With today's executive action, I am taking historic steps to lift the restrictions on American energy, to reverse government intrusion and to cancel job-killing regulations."

Trump added that his overhaul of "bad regulations" would not interfere with preserving clean water and air or ensuring safety.

In Tuesday's order, the administration instructs the White House Council on Environmental Quality to repeal guidance finalized in August mandating federal agencies to consider climate change in environmental reviews.

The order also disbands the Interagency Working Group on Social Cost of Greenhouse Gases and withdrew all of the group's documents associated with a requirement for regulators to consider the social cost of carbon in policy decisions as "no longer representative of governmental policy." The Obama administration had set the social cost of carbon at $36 per ton of carbon dioxide.

In addition, the executive order will end a moratorium on new leases for coal mined from federal lands the Obama administration put in place early last year and will call for a review of Obama-era rules limiting methane emissions from oil and gas operations and restrictions the Obama administration finalized in 2015 on hydraulic fracturing on federal lands.

Earlier this month, lawyers for Trump's Interior Department said they were rescinding that fracking rule and working on a new one. The fracking rule had been stayed since June when US District Court Judge Scott Skavdahl in Wyoming ruled Interior lacked authority to regulate fracking.

Executive order cannot alter regulation

But killing the CPP, or any final rule, is not something that can be done solely through executive order.

As attorneys and environmentalists have pointed out, regulations that were adopted through a notice-and-comment process cannot be altered through an executive order. Administrative law principles require the same notice-and-comment process that went into promulgating a new rule to overturn it.

"This is the first move of a long chess game that will take years to unfold, and future moves will be far more challenging," Richard Revesz, director of the Institute for Policy Integrity at NYU School of Law, said in a statement Tuesday. "Despite the hoopla, the executive order has no legal significance at all."

Revesz said that EPA will need to launch a lengthy rulemaking process and propose a rule explaining the legal, economic and scientific basis for moving away from the CPP.

Any new rule crafted to rescind the CPP will also be subject to the same level of scrutiny and legal challenges that the CPP's opponents amassed to fight the rule.

Given the likelihood for litigation, "this issue might not be resolved before the 2020 election, so the fate of the Clean Power Plan might ultimately be determined by the winner of that election," Revesz said.

While the landmark rule threatened the closure of numerous coal-fired power plants, roughly 60 GW of the nation's oldest, least-efficient plants have already been closed due to other regulations or competition from cheap natural gas.

Even the repeal of the rule is unlikely to result in any new coal-fired plants given the long-term regulatory risk surrounding coal and forward natural gas markets that continue to show suppressed pricing.

Coal promises may succumb to market dynamics

Merrill Matthews, resident scholar with the Institute for Policy Innovation, a right-leaning think tank critical of restrictions on domestic energy exploration, said power generators planning for the long-term are cognizant that they have a friendly administration now but that may not be the case in the future.

Thus, they are going to make investment and resource mix decisions that "move in a direction that if a new administration comes in, which could be as soon as four years, [they] don't have to dramatically restructure everything," Matthews said.

So regardless of the executive order and overall industry-friendly tone of the Trump administration, power plant operators and investors are likely "going to try to plan with a forward view that we want to try to minimize carbon emissions as much as possible," Matthews said.

That does not bode well for the coal industry or Trump's promises to be its savior.

As Matthews noted, the abundance of natural gas at relatively low prices has made it "easier for plants to move to natural gas because it's cheap and it also releases about half the carbon emissions of coal."

So while aspects of the order provide benefits to the coal industry and would shed some regulatory compliance costs, they do little to change the market dynamics driving down coal's share in the generation mix.

US Energy Association Executive Director Barry Worthington said in an interview Tuesday that particularly in the large swaths of the country with competitive power markets, "for new coal plants to be viable someone has to have confidence that they're going to be able to beat the price of natural gas over the next 30 or 40 years."

The unlikelihood of such a scenario, he said, meant the executive order would probably not make a "huge difference" to the projected generation mix going forward.

Industry will stick to emissions-cutting path

Data compiled by Platts Analytics’ Bentek Energy shows 91 GW of new natural gas capacity under construction or proposed during Trump's first term, with just 10.3 GW of retirements expected by gas-fired plants in that timeframe.

Based on current company announcements, Platts Analytics is tracking 20.8-GW worth of coal retirements over the 2017 to 2020 period. With the demise of the CPP and other environmental policies, coal plant operators are likely to rethink some of those retirement decisions. Still, competition from natural gas means coal retirements are more likely to be put off by a few years than be taken off the table all together.

"A lot of our members and our industry are committed to greenhouse gas reductions, and we're going to continue that path with or without the Clean Power Plan," Worthington said. "We're already more than halfway there in meeting the [CPP's] emissions reduction targets for 2030, and we're certainly going to continue that."

What the executive order does do, Worthington contended, is make it easier on industry and less burdensome on the economy to meet emissions reductions goals "on a basis where we're not tied to a regulatory scheme like the Clean Power Plan."

But the fate of the coal industry was still a question mark that the executive order would not solve, he said.

"You're certainly going to see some coal plants stay open that would have shut down, so you're going to have some coal mining jobs and jobs operating coal-fired power plants that would have gone away because of the Clean Power Plan," Worthington said.

But "on a long-term basis, whether coal is going to be able to compete for new generation plants with gas certainly remains to be seen, ? but we'll certainly keep some plants open that would have otherwise been shutting down in the next two to three years."

Trump's policy blueprint

The order also directs federal agencies to identify any policies and regulations hindering domestic energy production.

These agencies will have about four months to identify those regulations and policies and the Trump administration will likely move to repeal or weaken them, forming what a senior White House official called the "blueprint" for the administration's energy policy going forward.

"Energy independence, that's the goal," the official said during a briefing with reporters late Monday.

But it remains unclear if removal of any regulations which the fossil fuel industry would depict as development hurdles will boost supply, according to Jenna Delaney, a senior energy analyst for Platts Analytics' Bentek Energy.

Obama-era regulations were always seen as having a marginal impact on oil and gas production as evidenced by the dramatic increase in supply which occurred during Obama’s second White House term.

"What this shows is that it wasn't the administration that was driving either the production growth or decline, those both happened while President Obama was in office," she said. "The increases and declines were driven by what was happening with prices."


 

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